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Introduction to Uncertainty
UGBA 143:
Game Theory and Business Decisions
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One of the three boxes contains a prize; the other
two are empty
After choosing one of them (e.g. pink), one of the
other boxes (e.g. red) is opened and revealed to
be empty
Will you stick with your original choice?
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Probability:
The Language of Uncertainty
Two key components:
A.
A list of all possibilities that may occur
B.
The probability / likelihood of each
scenario
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A. Listing all possible scenarios
Creative brainstorming
The set of possible scenarios must be:
1.
Collectively exhaustive
¾
Exhaust all possibilities
¾
Total probability of all scenarios is 100%
2.
Mutually exclusive
¾
Two scenarios cannot simultaneously occur
¾
Otherwise, scenarios have not been
sufficiently “refined”
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B. Assigning probabilities
Probability of an event:
Use historical data or collect new information
Check:
– Is there sufficient data?
– Do all observations reflect uncertainty in the same way?
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This note was uploaded on 04/01/2008 for the course UGBA 143 taught by Professor Xuanmingsu during the Spring '08 term at University of California, Berkeley.
 Spring '08
 XuanmingSu

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